Two innovative new types of limited partnership are about to be introduced in Jersey: the "Separate Limited Partnership" and the "Incorporated Limited Partnership".
Since the passing of the Limited Partnerships (Jersey) Law 1994, Jersey limited partnerships have proved increasingly popular, particularly as collective investment vehicles. The Separate Limited Partnership and the Incorporated Limited Partnership are each modelled on the limited partnerships available under the 1994 Law and will therefore be familiar. However, as described below, each will introduce a different legal status of limited partnership, thereby offering investors and business and professional undertakings maximum flexibility in choosing a limited partnership structure which matches their needs.
The introduction of the Separate Limited Partnership and the Incorporated Limited Partnership is expected to be of particular interest to banks, corporates, asset managers, fund promoters, institutional investors and other market participants involved in the structuring, establishment, administration and management of investment funds, structured finance vehicles and other asset and corporate holding structures.
Separate Limited Partnerships
Separate Limited Partnerships may be formed from 20 April 2011. The key feature of an SLP is that it will have a legal personality separate from that of its partners but without being incorporated. This means that an SLP will have the flexibility to own property, enter into contracts, and litigate and be litigated against in its own name (in contrast to a limited partnership formed under the 1994 Law). Separate legal personality is likely to be of particular use where the SLP will be investing in, or contracting with entities from, a jurisdiction which does not recognise the concept of limited partnerships, as the concept of separate legal personality is generally recognised in most jurisdictions.
Other key features of an SLP will be as follows:
- an SLP will have unlimited legal capacity, subject to any restrictions contained in the SLP's partnership agreement;
- an SLP's limited partners will not be liable for the debts or obligations of the SLP (subject to certain conditions set out in the law governing SLPs including, of course, any unpaid capital commitment);
- an SLP will require a general partner, which will be the only entity with unlimited liability in the dealings of the SLP with third parties, although the property of the SLP may be held in the SLP's own name or in the name of the general partner;
- whilst similar in many respects to a Scottish limited partnership, an SLP may be formed for any lawful purpose. This flexibility contrasts with a Scottish limited partnership which is required to be formed "between persons carrying on business with a view to profit"; and
- the name of an SLP must end with the words "Separate Limited Partnership" in full or either of the abbreviations "S.L.P." or "SLP".
Incorporated Limited Partnerships
Incorporated Limited Partnerships may be formed from 24 May 2011. The key distinction between an ILP and an SLP is that an ILP will be a body corporate with perpetual succession. One advantage of having body corporate status and thus perpetual succession is that persons dealing with an ILP can be confident that it will continue to exist and be held accountable for its debts and obligations. A further advantage is that most jurisdictions generally accept that a body corporate is governed by the law of the jurisdiction in which it is incorporated. This might be particularly important if there were perceived to be any risk that a limited partner might otherwise be treated by a non-Jersey court as having unlimited liability.
Other key features of an ILP will be as follows:
- as in the case of an SLP, an ILP will be able to own property, enter into contracts, and litigate and be litigated against in its own name, and will have unlimited legal capacity, subject to any restrictions contained in the ILP's partnership agreement;
- as in the case of an SLP, an ILP's limited partners will not be liable for the debts or obligations of the ILP (subject to certain conditions set out in the law governing ILPs, including any unpaid capital commitment);
- as in the case of an SLP, an ILP will require a general partner, which will be the only entity with unlimited liability in the dealings of the ILP with third parties. However, the general partner will only be liable for the debts and obligations of the ILP if the ILP has failed to discharge any of its debts or obligations as they fall due;
- an ILP will not be able to be dissolved otherwise than pursuant to the statutory winding up and dissolution procedures applicable to ILPs. The winding up and dissolution of solvent and insolvent ILPs is proposed to be dealt with in discrete regulations;
- as in the case of an SLP, an ILP may be formed for any lawful purpose (i.e. it is not be required to be formed "between persons carrying on business with a view to profit", as in the case of a Scottish limited partnership);
- the general partner of an ILP will be an agent of the ILP. The law governing ILPs will impose certain obligations upon the general partner of an ILP similar to those applicable to directors of a Jersey company (e.g. the duty to act honestly and in good faith with a view to the best interests of the ILP and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances); and
- the name of an ILP must end with the words "Incorporated Limited Partnership" in full or any of the abbreviations "I.L.P.", "ILP", "Inc. L.P." or "Inc LP".
Other Jersey legislation
Appropriate amendments have been, or will be, made to the legislation in Jersey relating to the establishment and regulation of investment funds to ensure that SLPs and ILPs may be used immediately in fund structures.
It is expected that SLPs and ILPs will be treated in the same manner as ordinary Jersey limited partnerships for Jersey tax purposes (i.e. SLPs and ILPs will be tax transparent). However, the tax treatment of Jersey limited partnerships, including SLPs and ILPs, and their partners may differ in other jurisdictions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.